The Lesedi Local Municipality is facing a severe financial crisis, losing an estimated R16 million per month in revenue, which it attributes directly to the rise of the illicit economy and subsequent de-industrialization, officials revealed at the Lesedi Black Business Forum Symposium last week.
The symposium, themed “The impact of de-industrialisation on small towns,” heard that the municipality’s economic base has been eroding for two decades, with a major blow coming from the decline of a key corporate taxpayer, the British American Tobacco (BAT) company.
According to the Mayor of Lesedi Local Municipality, the area has suffered a significant decline in economic activity. He pinpointed de-industrialization, fueled by the illicit market, as the primary cause.
The scale of the loss was laid bare with specific figures from BAT. Before the COVID-19 pandemic, the tobacco giant was paying the municipality R18 million per month in revenue. That figure has since plummeted to just R2 million.
The Mayor explained that the national government’s ban on tobacco sales during the pandemic was a catalyst for this decline. “They were paying a revenue of 18 million a month to the municipality,” he stated. “We are a relatively small municipality with a budget of 1.3 billion… 18 million a month will amount to about 200 million [a year], meaning you are 200 million down.”
The fallout extends beyond lost tax revenue. The Mayor reported that BAT has retrenched more than 3,000 workers. “Those people were contributing to the local economy of the municipality,” he said. “Now those people are indigent, they can’t pay, and so these are the challenges that we have as a municipality.”
A student from the University of Pretoria, speaking at the symposium, proposed that focused education is the solution to de-industrialization. The student argued for an educational shift towards curriculums that align with the needs of South Africa’s available industries and sectors. “There’s no need focusing on a lot of putting a lot of resources into certain curriculums that don’t translate to jobs,” the student said, adding that South Africa has more of a “jobs problem” than a “skills problem.”
In response to the issue, a spokesperson for the Department of Trade, Industry and Competition (DTIC) stated that the department is actively looking at ways to clamp down on the illicit economy. The spokesperson confirmed that illicit goods are confiscated, and perpetrators face legal consequences through collaboration with law enforcement agencies.
Furthermore, the DTIC is developing a “comprehensive strategy” for a coordinated government response. “We know the impact of illicit trading does to the formal economies,” the spokesperson said. “People don’t pay taxes, etc.”
The Lesedi Municipality also warned that broader service delivery failures are driving companies away from South African towns. The municipality cited the current water crisis, climate change, and poor road infrastructure as critical issues. While acknowledging that the insufficient electricity supply remains a “work in progress,” officials stressed that until these fundamental service delivery issues are made a priority, the exodus of businesses is likely to continue.